INCOME TAXES
The provision for income taxes consisted of the following for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (in millions) |
Current provision: | | | | | |
Federal | $ | 1,324 |
| | $ | 921 |
| | $ | 1,067 |
|
States and Puerto Rico | 116 |
| | 88 |
| | 90 |
|
Total current provision | 1,440 |
| | 1,009 |
| | 1,157 |
|
Deferred expense (benefit) | 132 |
| | (71 | ) | | (2 | ) |
Provision for income taxes | $ | 1,572 |
| | $ | 938 |
| | $ | 1,155 |
|
The provision for income taxes was different from the amount computed using the federal statutory rate for the years ended December 31, 2017, 2016 and 2015 due to the following:
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| (in millions) |
Income tax provision at federal statutory rate | $ | 1,407 |
| | $ | 543 |
| | $ | 851 |
|
States, net of federal benefit, and Puerto Rico | 80 |
| | 41 |
| | 44 |
|
Tax exempt investment income | (22 | ) | | (20 | ) | | (24 | ) |
Health insurer fee | — |
| | 336 |
| | 314 |
|
Nondeductible executive compensation | 36 |
| | 30 |
| | 18 |
|
Tax reform | 133 |
| | — |
| | — |
|
Concentra sale | — |
| | — |
| | (67 | ) |
Other, net | (62 | ) | | 8 |
| | 19 |
|
Provision for income taxes | $ | 1,572 |
| | $ | 938 |
| | $ | 1,155 |
|
The tax reform law enacted on December 22, 2017 (the "Tax Reform Law") reduced the statutory federal corporate income tax rate to 21 percent from 35 percent, beginning in 2018, and required a mandatory deemed repatriation of undistributed foreign earnings. The rate reduction required a remeasurement of our net deferred tax asset. These items resulted in an estimated increase in our 2017 tax provision of approximately $133 million, including approximately $10 million for the deemed repatriation tax imposed on the undistributed earnings of our Puerto Rico operations.
The provision for income taxes for 2017, 2016, and 2015 reflects a $36 million, $30 million, and $18 million, respectively, estimated impact from limitations on the deductibility of annual compensation in excess of $500,000 per employee as mandated by the Health Care Reform Law. We do not have material uncertain tax positions reflected in our consolidated balance sheets.
Deferred income tax balances reflect the impact of temporary differences between the tax bases of assets or liabilities and their reported amounts in our consolidated financial statements, and are stated at enacted tax rates expected to be in effect when the reported amounts are actually recovered or settled.
Principal components of our net deferred tax balances at December 31, 2017 and 2016 were as follows:
|
| | | | | | | |
| Assets (Liabilities) |
| 2017 | | 2016 |
| (in millions) |
Future policy benefits payable | $ | 231 |
| | $ | 355 |
|
Benefits payable | 113 |
| | 196 |
|
Compensation and other accrued expenses | 138 |
| | 153 |
|
Net operating loss carryforward | 53 |
| | 52 |
|
Deferred acquisition costs | 48 |
| | 72 |
|
Unearned revenues | 12 |
| | 18 |
|
Investment securities | — |
| | 12 |
|
Other | 1 |
| | 6 |
|
Total deferred income tax assets | 596 |
| | 864 |
|
Valuation allowance | (49 | ) | | (49 | ) |
Total deferred income tax assets, net of valuation allowance | 547 |
| | 815 |
|
Depreciable property and intangible assets | (237 | ) | | (363 | ) |
Prepaid expenses | (44 | ) | | (53 | ) |
Investment securities | (49 | ) | | — |
|
Total deferred income tax liabilities | (330 | ) | | (416 | ) |
Total net deferred income tax assets | $ | 217 |
| | $ | 399 |
|
In November 2015, the FASB issued new guidance related to accounting for income taxes which changes the balance sheet classification of deferred taxes, requiring deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position effective for us beginning with annual and interim periods in 2017. We elected to early adopt the guidance in 2015. All deferred tax liabilities and assets are classified as noncurrent in other long-term assets in our consolidated balance sheets at December 31, 2017 and 2016 to simplify their presentation.
At December 31, 2017, we had approximately $168 million of net operating losses to carry forward related to prior acquisitions and our Puerto Rico subsidiaries. These net operating loss carryforwards, if not used to offset future taxable income, will expire from 2018 through 2033. Due to limitations and uncertainty regarding our ability to use some of the loss carryforwards and certain other deferred tax assets, a valuation allowance of $49 million was established. For the remainder of the net operating loss carryforwards and other cumulative temporary differences, based on our historical record of producing taxable income and profitability, we have concluded that future operating income will be sufficient to give rise to tax expense to recover all deferred tax assets.
We file income tax returns in the United States and certain foreign jurisdictions. The U.S. Internal Revenue Service, or IRS, has completed its examinations of our consolidated income tax returns for 2015 and prior years. Our 2016 tax return is in the post-filing review period under the Compliance Assurance Process, or CAP. Our 2017 tax return is under advance review by the IRS under CAP. With a few exceptions, which are immaterial in the aggregate, we no longer are subject to state, local and foreign tax examinations for years before 2014. We are not aware of any material adjustments that may be proposed.